Nearly 1 in 4 Americans say they have changed or left a job because of the length of their commute. For employers, the benefits of promoting a commuter-friendly workplace are essential. Costs are saved when you reduce employee turnover, and production increases with morale as employees are less stressed from their commute. Companies that are dedicated to reducing traffic congestion and pollution not only improve air quality for all—it also has a positive effect on their public image.
Parking cash out is a program that allows employees to opt out of having a parking space and instead receive compensation from their employer who leases or owns the space. This encourages employees to use other commute solutions which decreases traffic congestion and improves air quality for all.
Parking cash out develops its own incentive…cash! But remember, most people who give up their parking space will need to find another way to work, so the employers should explore the incentives that support other Commute Solutions strategies. And since the employee is likely giving up car commuting entirely, three incentives are particularly helpful:
- Offering a Guaranteed Ride Home program
- Allowing them to use employer fleet or pool vehicles for meetings, personal use, etc., during the day
- Keeping extra open spaces and allowing the employee to “check-out” a parking space if needed
Reduce Parking Needs
Employee Income Increase
Increase Community Connectivity
Improve Air Quality
Exercise & Health
Commuter Tax Benefits
Employers and employees are both eligible to receive tax benefits to use a portion of their pre-tax income for public transportation and parking according to the IRS Revenue Procedure 2018-57.
Monthly spending on mass-transit services, van pooling services, and parking either at work or at a Park & Ride lot are tax exempt for employees.
Employers may also offer a salary deferral program that employees can use to pay their transit and parking costs.
Frequently Asked Questions
Employers may have additional payroll taxes and be required to pay employees who are not currently using parking. Employees may also take the cash out program and decide to park elsewhere, which has a negative environmental impact. Bundled parking leases for employers may also delay savings or complicate implementation.
Assessing the parking situation for your company and performing a site analysis will provide a good look at how you manage your parking. The following areas will need to be evaluated:
- The number of employees who park at work (include those that may not be able to find an employer-provided space)
- The number of employees who don’t use parking spaces because they utilize other Commute Solutions
- How many spaces are available for employee parking (Be sure to note types as well, like “Compact Car Only,” “Disabled,” etc.)
- How much the employer pays for the average employee space (If the employer owns the lot, try to get an estimate on how much construction and maintenance costs are for an average spot. Your facilities manager should be able to help with the estimate.)
- The lease agreements and specifics (how the employer pays for spaces) for leased parking. Lease agreements can be by reserved spaces, or simply the total number of spaces overall. Additionally, some leases are for bundled parking, meaning the employer doesn’t have the option of adding or subtracting individual spaces each month since the cost is included in the rent.
- Determine Cash Out Payment and Procedure - Employers work with management to establish the proper cash out payment. For simplicity’s sake, you could assume that if an employer pays $80 for a parking space, the cash out participant will get $80 a month. However, different strategies offer the employer and employee different benefits.
- Payroll tax deduction - When employers contribute to a cash out program, they are essentially adding to the employee’s monthly salary. The employee pays income taxes and other withholdings on the amount, which is unavoidable. The employer also has to pay added payroll taxes, which may seem like a deterrent to using the program. To avoid the problem, the employer simply can pay the employee 90 percent of the cost for the space and pocket the rest. So, on an $80 space, the cash out participant would get $72 dollars, and the employer would recoup $8 to cover additional payroll taxes.
- Keeping a Portion of the Cash or Paying More Than the Space is Worth - No regulations guide how much an employer keeps on the cash out program. So on an $80 parking space, an employer could pay the employee $60 and keep $20. Remember, however, that one of the main benefits from Commute Solutions' programs is the goodwill your employees feel toward their employer for receiving benefits. If the employee knows the company is coming out ahead, part of that goodwill may be lost. Conversely, some employers opt to give employees even more than the value of the parking space, because they value the cash out decision and associated benefits it provides. Still, retaining a portion of the parking cash out offers some flexibility for companies who are experiencing tough times. For example, retaining an extra $5 of a monthly $80 cash out could go toward funding a Guaranteed Ride Home program for all Commute Solutions users, or a company could reserve a few open spaces that cash out participants can check out if they do have to bring a car occasionally. Employers should consider the ramifications of establishing a cash out program if there are already many employees who don’t drive to work and instead use Commute Solutions. To be fair, these employees should receive a cash-out payment as well, and if the employer isn’t recouping money immediately from leasing less parking, the program could seem like a major expense. To help offset those costs, the ETC can consider different strategies to retain a small portion of the cash out for the employer.
- Paying Employees Who Didn’t Park Before the Program - Some employers, wary of keeping some of the cash, have opted to pay employees for cash out by how long they remain with the organization. For example, on an $80 space, an employee who had been at the job for one year or less might only get $50 in cash for giving up a space, while a three-year employee would get $60, and so on.
- Structuring the Cash Out to Promote Retention - One of the best ways to structure a program is to allow employees to cash out their parking space and use the money to purchase transit or vanpool passes. The transaction can then be handled all at once through payroll, and the employee then gets the added benefit of having no taxes paid on the commuter fare. For example, on an $80 space, the employer could pay $70 for the cash out. The employee could use $25 of that amount (tax free) for a vanpool pass while pocketing the remaining $45 (taxed) each month as extra money.
- Allowing the Cash to Go Toward Commuter Programs
- Offering a Daily Cash Out - Some employers have an innovative trade worked out for employees who don’t choose to park on a given day. With this system, the employer usually owns the parking lot or garage and is looking for a way to reduce demand when not enough spaces are available. As an example, one U.S. company gives workers who don’t park on a given day a pass good for $3 off at the on-site cafeteria.
- Paying a Flat Monthly Commuter Allowance - Many employers simply offer their workers a flat allowance (say $80) each month to pay for parking or other options for getting to work. Therefore, a driver can use the money for parking, while a vanpool rider with a typical fee could pay $25 for the pass and pocket the rest as cash.
- Requiring Parking Cash Out Participants to Use Commute Solutions - A possible downside of the cash out program is the potential for an employee to take the cash and still drive to work. Such employers simply find a cheaper space farther away that doesn’t belong to the employer. An employer could require that participants use other Commute Solutions strategies, but this might draw the ire of some employees who feel they aren’t getting fair treatment for their desire or need to drive to work. A better idea is to encourage these drivers to try commuting alternatives occasionally. Cash-out participants who continue to drive shouldn’t be a large problem, because most would find it hard to save a substantial amount of money on parking alternatives—not to mention they probably are sacrificing security and convenience to save a few bucks.
- Setting Up a Cash-Out System on Leased Spaces - For unbundled leased spaces, the employer simply works with the parking management company and appropriate person at their company to subtract spaces for cash out participants. For bundled parking space agreements, the process can be a bit trickier. The employer may have to wait until the lease has expired to renegotiate the terms and number of spaces. Or a renegotiation could be initiated before the expiration if the owner of the spaces is willing. Unfortunately, the owner of the spaces will only benefit on cash out programs if there is someone else in the building or area that is willing to lease them when they become empty. On the other hand, the owner may be extremely willing if not enough parking is available for their tenants. So the employer must assess the situation and work creatively toward a cash out system that provides benefits to all involved.
- Setting Up Cash-Out System on Owned Spaces - If an employer owns a space, it probably isn’t paying a fee for it each day. So, what would be the benefit of paying employees not to park? Often, employers:
- Don’t have enough parking spaces for their employees and will be receptive to finding ways to reduce the number of people who need spaces. Reducing the need makes employees who have trouble finding parking happier and possibly precludes a need to construct costly new parking spaces.
- Are relocating and want to reduce their parking cost by building fewer spaces
- Have enough parking, but may be able to lease empty spaces to other employers for a profit
- Have enough parking but want to increase the number of spaces for customers or visitors
- Have enough spaces but must cut the maintenance budget. Determine Administrative Needs for Cash Out Programs
The employer will need to work with payroll to develop a simple election form that allows employees to choose the cash out program. Like other payroll systems for commuter programs, these elections are usually straightforward and easy to administer.
The costs and savings for parking cash out are dependent on whether the employer leases or owns a space and how much an employee is paid to not use the space. (Some states also offer tax credits for employers who institute parking cash out, but Texas is not included.)
In a typical example, an employer can save money on each participating employee:
- A downtown law firm provides each employee with a leased parking space at $80 a month.
- About 15 percent of the employer’s workforce of 170 enrolls in a parking cash out program sponsored by the firm.
- The firm pays each of the 25 participating employees a fee each month not to park. Employees who have been at the firm one year or less get $50, those who have been there three or more years get $60, and those with more than five years get $70. The numbers of employees in those categories are five, 15 and five, respectively.
- The firm pays a few dollars for each employee in added payroll taxes, an amount that will be offset by overall savings.
- The firm saves about $460 a month with the program. Additionally, it saves a significant amount of money in increased retention of employees and worker productivity.
Tools & Resources
Qualified Transportation Fringe Benefits
|Category||Transit||Commuter Highway Vehicle (e.g., vanpool)||Qualified Parking||Qualified Bicycle Commuting Reimbursement|
|Incentive Levels||Up to $265/month* for transit expenses||Up to $265/month* for commute trip in a vehicle with a seating capacity of at least six adults (excluding the driver), with at least 80 percent of the vehicle’s mileage for a year is reasonably expected to be for commuting and on trips during which the number of employees transported for commuting is at least one-half of the seating capacity of the vehicle (excluding the driver)||Up to $265/month** for parking at or near an employer’s worksite, or at a facility from which employee commutes via transit, vanpool, or carpool||Qualified Bicycle Commuting Benefit remains ineligible as a tax free benefit.|
|Employer||Employers may give their employees up to $265/month for transit vouchers, commuter highway vehicle fares and/or commuter parking fees.|
Change in 2019: Private sector employers are no longer able to deduct the tax-free qualified transportation fringe benefit payments to employees as a business expense. Only if an employer treats the qualified transportation fringe benefits as taxable W-2 wages to the employee, the employer can deduct the expenses of providing those benefits.
|Qualified Bicycle Commuting Benefit remains ineligible as a tax free benefit.|
|Employers may allow employees to use up to $265 per month in pre-tax income to pay for transit vouchers, commuter highway vehicle fares and/or parking fees.|
Employers may reduce their payroll tax contribution of the pre-tax income used by employees to pay for transit vouchers, commuter highway vehicle fares and/or parking fees.
|Employee||Most employees may receive up to $265/month for purchase of transit vouchers, commuter highway vehicle fares and/or parking fees from his or her employer. This subsidy value will not appear on their W-2 form as income.||Qualified Bicycle Commuting Benefit remains ineligible as a tax free benefit.|
|Employee pays for commute benefit with the pre-tax income up to the $265/month statutory limit and receives more after-tax spendable income.|
|Employee may combine the pre-tax benefit with employer subsidies up to $265/month for each to pay for transit vouchers, commuter highway vehicle fares and/or parking fees.|
* tax free transit and vanpool benefit limit increased from $260 per month in 2018. It was raised to $265 per month for beginning January 1, 2019.
** tax free parking benefit limit increases from $260 per month in 2018 to $265 per month beginning January 1, 2019.
Visit the Best Workplaces for Commuters website and read the FAQs on Qualified Transportation Fringe Benefits for information on types of qualified commuter benefits, tax savings for employers and employees, tax benefits of employee pre-tax deductions, and more.
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